Sharing The Wealth

Issuing Shares And Creating Shareholders In Your Business

Allocation, Rights And Liabilities

So, you've set up your Limited Company and you're ready to start allocating shares in it. Now, you've got some important decisions to make. For a start, you're going to need to decide how many shares you want to issue, and who gets them.

When someone buys shares in your company, they're not just giving you free money. You might be the Director of your company, but it's the Shareholders who'll end up owning it. Keep in mind that you can be both.

The number of shares a Shareholder buys determines their liability if the company ever falls apart, but it also measures their entitlement to dividends and the weight of their votes in certain types of meeting. Depending on what type of shares you're selling, Shareholders may have full voting rights or none at all. There's no universally accepted "normal" way of structuring your shares, so give us a call to talk about your options before you dive in. In the meantime, here's a quick list of pointers to get you started:

Make sure you've got enough authorised share capital in the pot to cover the new shares you want to issue, and that the Companies Act and your own business' rules give you the authority to offer them.

Hold a meeting or get a written resolution and record the details of the issue you want to make. If necessary, file those details in your company's statutory records.

Once everything's sorted out and the shares are paid for, make sure you've kept Companies House in the loop. You've got to get your records with them filed within a month of the shares being issued.

Sort out your share certificates and get them filed in your statutory books within two months. If any of the shares were bought using something other than cash, you might have to pay Stamp Duty on the payment.

It can be quite an involved procedure slicing up your business pie. Get in touch and we'll make sure you never bite off more than you can chew.

Sharing the Work

If you're looking to attract high-flying or particularly skilled workers, you might want to think about offering shares as part of their employment terms. These "Employee Shareholders" have a real stake in the business, which can be important if you're trying to build something lasting with them.

If the company does well, those shares increase in value, and there may be some tax benefits if the employee later wants to sell them. The value of the shares you offer has to be at least £2000, but there really is no upper limit.

Not every employee is a budding investment tycoon, of course, so you'll have to be prepared to take on the cost (within reason) of the advice they get before accepting your offer. There are also some rules that both the company and the employee must keep in mind. For example:

You can't require anyone to accept an Employee Shareholder contract, so don't even try.

You can't ask the employee to pay anything for the shares.

The employee has to get independent advice before accepting, which the company has to pay for even if the contract is then refused.

There are more considerations, of course, so make sure you get some professional advice before taking this particular plunge.